How to Pay Off Collection Bills

Whether you've suffered recent financial setbacks or merely overlooked a bill, having an account in collections quickly can become a nightmare. You could face everything from an annoying barrage of collection calls to frozen bank accounts and wage garnishment. Making arrangements to pay off your collection accounts now can save you from far greater problems in the future.

Plan Your Payment

Before you contact the collection agency with an offer, establish just how much financial freedom you have to pay off the debt. If you can afford to pay off the full amount in one lump sum and are willing to do so, evaluating your finances isn't necessary. Unfortunately, most debtors don't have this luxury.

Review your budget and look at places you can cut corners. Every dollar of disposable income you don't spend is another dollar you can devote to absolving your debt problem. Reviewing your budget and comparing your expenses to your income helps you get a clearer picture of how much you can reasonably afford to put toward paying your collections each month.

Partial Payments

Contact the collection agency and ask the representative you speak with how much you would need to pay each month to resolve the debt. Even if the company wants more each month than you can afford, collectors also know that a little bit of money is better than none at all.

The amount of your payment is negotiable. If you can't reach a consensus with the collector you're speaking with, hang up and call the company again. Unless your collection is on file with a local collection agency with limited staff, its unlikely you'll speak to the same person. Continue attempting to negotiate until you find a representative that's willing to work with you and structure payments to fit your income.

Lump Sum Settlements

Some collectors are willing to accept less than you owe provided you pay the amount in a lump sum. This is a “settlement.” While debt collectors may send you settlement offers, you also can call the company and propose a settlement yourself.

Before negotiating a settlement, decide the maximum amount that you're willing to pay the company. Your initial offer should be well below that amount. Because the collector isn't likely to accept your initial offer outright, starting low provides you with more “wiggle room” for negotiating.

All collection agencies differ. Whether or not the company accepts your settlement offer is based on the following factors:

  • The company's policies
  • Whether the company is an in-house collection department or a third-party collection agency. In general, third-party agencies are more willing to negotiate
  • How much you owe
  • The age of the debt. The more recent the debt, the harder it is to settle

Keep Documentation

Unfortunately, collection agencies aren't known for their integrity. It's imperative that once you reach an agreement with a collector, you request a copy of the agreement in writing. Failing to do so could result in you negotiating and paying off a settlement, only to have the collection agency deny any knowledge of the agreement and demand the full amount. If you are paying your debt in installments, keep track of each payment and the remaining balance every month to ensure that you aren't making more payments than you agreed to.

Once you've paid off the agreed-upon portion of the debt, ask that the collector send you a zero balance statement reflecting that you no longer owe a balance to the company. The original settlement agreement, evidence of your payment and the zero balance statement protect you in the event the collector sells the unpaid portion of your debt to another collection agency.